The quoted bid‐ask spread for a security was $47.25–$47.27. A trader with a market order sold the security at $47.26. The bid‐ask spread remained the same before and after the execution. The effective spread for this trade most likely indicates:
an illiquid market.
significant price impact of the trade.
dealers are providing price improvements.
I don’t have any problem in solving the question but not able to understand below-captioned concept provided in the answer to this question. Please help!!!
“In general, if effective spreads are less than quoted spreads, dealers are providing price improvements. In this case, the price improvement may have been for the seller, but the dealer may be crossing orders from several sources, including hidden orders.”
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